VAT Reduced to 4% on Purchase of New Build Properties

By Mark Roach - Tue 6th Sep 2011

Tumbit Approved Partner

The Spanish Government has recently reduced IVA (VAT) on new build purchases from 8% to 4% until 31st December but not for resale or second hand properties to encourage the sale of properties bought directly from builders in Spain.

Wincham Consultants Limited is a Spanish Tax and Legal Consultancy and can assist clients who have just located a property to purchase or are about to place a deposit on a new build. Before you commit yourself to the property we will provide you with an Illustration, free of charge, which will inform you of the potential Spanish Inheritance Tax liabilities should you purchase in you own name/s and detail an alternative method of ownership using a UK Limited Company structure. Not only can we identify the pitfalls of owning in your own name but we will act on your behalf in respect of the purchase into a UK Company and include all necessary searches of the property, to ensure that there are no issues attached to the property, and all legal work required to effect a safe and legal registration of the property.

If the property is purchased in the owner's names then they are legally obliged to submit annual Tax declarations in Spain and pay Tax on the perceived rental of the property if they intend to use it for personal use only. If they intend to rent the property out then they would be obliged to pay Tax at 24% on gross rentals received and may not be able to offset any of the expenses incurred in the running of the property.

Purchasing the property in a UK Limited company means there is no requirement for the owners to submit annual personal Tax Declarations in Spain, as the UK Company submits an annual Tax Declaration as the owner of the property. This is filed as a zero Tax Declaration as the company is a Non Resident company of Spain and pays any taxes due in the UK.

Not only is it no longer necessary to submit personal Tax Declarations but there is no necessity for a Spanish Will as a correctly written British Will covers a British subjects worldwide assets including the shares and assets of a UK Company. The ownership of a Spanish property in a UK Limited company brings the asset under UK jurisdiction and means there is no longer any requirement for probate in Spain. Also under UK law for Inheritance Tax Husband and Wife inherit between one and another tax free which cannot be done in Spain for a Non Resident Spouse.

Should you wish to sell the property in the future then there are 2 methods of doing so as the property can be sold independently by the company or the shares in the company can be sold to the purchaser which may save the 7% Transfer Tax for the buyer and 3% Withholding Tax to the seller. Another advantage of selling the shares/company is any Directors loans which have been built over time to fund the running costs of the Company and property may be withdrawn first of all, Tax free !

So before you complete your purchase in Spain or if you wish to move your current Spanish property into a UK Company structure then please contact us (by clicking the link HERE ) to see how we may be able to help.